Illinois Teachers' Retirement System, Springfield, approved a total of $653 million in new commitments to a variety of strategies with a focus on increasing the portfolio's European investments.
The largest commitment made during a meeting Tuesday was $300 million to existing manager Starwood Capital Group for the creation of a value-added real estate separate account from the fund's $1.4 billion opportunistic real estate portfolio.
The separate account will be Starwood's first fund of one, but the firm may make separate accounts available to other institutional investors in future, said Timothy Hayes, senior investment officer - real estate, during an investment committee meeting.
The TRS real estate investment team will have exclusive access to the deal flow of $2 billion of opportunistic deals that don't fit into Starwood's commingled opportunistic funds, as well as properties that Starwood may be selling from its portfolios that might fit well into TRS' other real estate portfolios, Mr. Hayes said. Pension fund officials will retain investment discretion over the new portfolio.
Ideally, the strategic partnership with Starwood will result in a portfolio with between seven and eight “really good, diversified real estate investments,” Mr. Hayes told trustees.
The $45.6 billion pension fund had a total of $815 million invested or committed to six Starwood funds, including three co-investments, as of Sept. 30.
In credit, two existing real estate debt managers in the pension fund's $1.1 billion special situations portfolio each received $100 million commitments for new funds: PIMCO Bravo Fund III and Oaktree Real Estate Debt Fund II. The funds are managed by Pacific Investment Management Co. and Oaktree Capital Management, respectively.
Commitments to the new funds will add more European exposure to the $9.6 billion global fixed-income portfolio, as portfolio managers exploit “significant opportunities” stemming from refinancing of commercial and residential mortgage-backed securities throughout the region and forthcoming regulatory and political events, said Scottie Bevill, senior investment officer - fixed income
As of Sept. 30, PIMCO managed a total of $2.1 billion in eight funds and Oaktree managed a total of $507 million in three funds for the pension plan.
In private equity, TRS committed $100 million to Veritas Capital Fund VI, managed by Veritas Capital Fund Management for investment in upper middle-market U.S. companies that provide technology services to government agencies, and €50 million ($53 million) to TDR Capital IV with an intention of gradually increasing the commitment to €100 million for investment in European middle-market buyout deals.
The pension fund's three investments in Veritas funds totaled $82 million at the end of September. TDR is a new manager.
Adding TDR Capital is part of the pension plan's build-out of a $600 million Europe-focused private equity subportfolio, said Jerry Quandt, investment officer - private equity.
The goal is to increase European exposure in the fund's $5.6 billion private equity by adding five more private equity managers focused on the region over the next three to four years, Mr. Quandt said. The initial commitment to each fund will begin at $50 million and increase to $100 million.
Also, Channing Capital Management was graduated from TRS’ $500 million emerging manager program to full-manager status with an allocation of about $240 million from the fund’s $1.5 billion active U.S. small-cap value equity. The $107 million Channing managed as of Sept. 30 from the emerging manager portfolio will be returned to the program, said Kirk Sims, investment officer for the program.
